Week In FX Europe: Forget The ECB Next Week - Funding Could Be More Expensive

Next week is a shortened trading week for North America. From a data perspective, investors will have a lot to digest before ending their sprint at next Friday's non-farm payroll report. Before investors get to endure any vulnerability from the employment announcement, global investors will have to endure both the copy and rhetoric from a plethora of central bankers. And the European Central Bank is one of them.

The ECB's 23 Governing Council members will meet against a backdrop of improving eurozone economic data to discuss their monetary policy. Their own region's gradual recovery remains very much uneven, and continues to be led by Germany. The common theme is that "for the foreseeable future, euro interest rate hikes are excluded." They are likely to remain at "present or lower levels for an extended period of time."

Political tension in the Middle East is likely to have more of an impact rather than an ECB announcement, and it will probably be felt more by the different eurozone government issues next week. Austria, Germany, Spain, and France will offer a total €18.5 billion worth of government bonds, and all of these auctions are scheduled ahead of the ECB's rate-setting announcement next Thursday.

Europe not only has to contend with the possibility of the Fed beginning to taper its $85 billion monthly bond-buying program, but now it has to price in geopolitical risk as well. In times of political and economic uncertainty, investors tend to seek safe haven assets -- and the bund is one of them. Dealers, instead of cheapening the curve to take down cheaper supply, could end up paying higher bond prices for a safer bond!

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